Packers Continue To Struggle

Although beef demand has increased, extra tonnage is pressuring prices and packers' ability to turn a profit.

“There has been chatter across the beef industry about ‘beef demand’ being slack compared to last year, when it is really beef consumption and not beef demand,” says Andrew P. Griffith, University of Tennessee livestock economist, in his Feb 21 Livestock Comments. At last week’s Mid-South Stocker Conference, Griffith emphasized boxed-beef values are similar to the same time last year, but there is currently more tonnage to market.

Any which way you slice it, though, beef packers continue to drag bottom when it comes to profitability.

“Beef packer margins were below the 2007-11 average for virtually all of 2012 and were far below those historical levels in the first quarter of 2012,” say Len Steiner and Steve Meyer in their Daily Livestock Report. “From August onward, gross beef margins were lower than the five-year average every week except three, and have been lower than that average every week so far in 2013. Further, the net margins since August have been, by all reports, deep in the red – a factor which, along with prospects of lower cattle numbers in coming months, contributed to Cargill’s decision to close its Plainview, TX, plant. It is likely, in our opinion, that another beef slaughter plant could close before cattle numbers possibly increase in late 2014 or 2015, assuming a return to normal rainfall in major grazing areas this year.”

Steiner and Meyer explain, “While producers determine long-run product supplies and the timing of those supplies with their decisions to breed animals and, in the case of cattle, place them on feed, packers make critical short-run decisions on how many animals to harvest and, consequently, how much product to put on the market given current demand and pipeline stocks. Packer margins have longer-term impact on the performance of packing companies and balancing capacity with animal numbers.”